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Crowdfunding is a phenomenon in which entrepreneurs raise money to fund their projects through the Internet, typically by obtaining small donations from a large number of people. An estimated $34 billion was collected using crowdfunding campaigns globally in 2015, and it’s expected to overtake the total amount of venture capital funding within the next several years.

Why crowdfunding?

In the past, an entrepreneur would pitch a creative idea to investors who put up the money. These investors could be a bank or venture capitalist providing a loan. Ultimately, it was a limited pool of people willing to take on financial risk to support an entrepreneur’s idea.

Crowdfunding goes directly to consumers over the Internet, asking them to donate a small amount of money to support a business or a creative project. The financial risk to each person is low, so the barrier to find funding for a project is also low.

Popular crowdfunding sites for business ideas and creative projects include Kickstarter, Indiegogo and GoFundMe.

The good, the odd and the silly

One of the additional benefits of crowdfunding is that a creator can measure the strength of their idea merely based on the number of people who agree to contribute.

One of the most successful crowdfunding projects so far is by Chris Roberts, creator of the popular 1990 video game Wing Commander. He took to Kickstarter to promote his plans to create an ambitious successor to his first game, called Star Citizen. To date he’s raised more than $175 million. The game is still under development.

Then there’s the Coolest Cooler, which raised $13 million to make a multifunction cooler with built-in water-resistant speakers, an ice-crushing blender, LED lights and a USB charging port. More than 60,000 people thought this was a good idea.

Or consider Zach Brown, who raised $55,000 to make a single bowl of potato salad (he ended up throwing a huge potato salad party for his backers).

Tips to try it yourself

If you are going to try crowdfunding out yourself, here are a few suggestions from experts:

Do your research. See if your idea has been pitched before, and how well it did. This will give you an idea of what your competition is, and what worked (or didn’t) for others.

Plan your campaign. Plan everything from the initial pitch, to the progress updates, to the rewards and equity stakes you offer people in exchange for their investment.

Make frequent video updates. The most successful projects use compelling videos of the creators introducing their ideas, as well as updates showing progress underway.

Set your funding goal as low as possible. The way most sites work is that if you reach your minimum funding goal, you can keep the money, but if you fall even a dollar short, you get none. Set your goal low to successfully fund your project, but not so low that you can’t complete it. Angry backers asking for their money back is not a pleasant outcome.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Virtual currencies are all the rage lately. Here are some tax consequences you must know if you decide to dip your toe in that world.

The IRS is paying close attention

The first thing to know is that the IRS is scrutinizing virtual currency transactions, so if you live in the U.S. you’ll have to report your transactions in Bitcoins and the like. Despite some early misconceptions, virtual currency transactions can be traced back to their owners by governments and other cyber sleuths.

If you decide to use or hold virtual currencies, carefully report and pay tax on your transactions. Act as if you are going to be audited, because if you don’t, you just might be!

It’s property, not money

Note that the IRS doesn’t treat Bitcoin or other virtual currencies as money. Instead, they are considered property. That means that if you are paid in Bitcoin, you will have to report it as income based on its fair market value on the date you received it.

And, if you sell Bitcoin, you have to pay tax on your gain using the cost (basis) of when you received it. The IRS has said that if Bitcoin is held as a capital asset, like a stock or a bond, then you would pay capital gains tax. Otherwise, if it is not held as a capital asset (for example if it is treated as inventory that you intend to sell to customers), it would be taxed as ordinary income.

Example: Craig Crypto bought a single Bitcoin on Dec. 29, 2016 for $967. After holding it as an investment (capital asset) for more than a year, Craig sold his Bitcoin for $14,492. He reports and pays 15 percent tax as a capital gain on his profit of $13,525.

Be aware of the risk

In addition to the increased oversight by the IRS, virtual currencies are at risk of virtual theft with no recourse to a government agency like the Federal Deposit Insurance Corporation, which insures U.S. bank balances.

If you need help with any tax questions related to virtual currency transactions, don’t hesitate to call.

Congress has passed tax reform that will take effect in 2018, ushering in some of the most significant tax changes in three decades. Here are some of the most important items in the new bill that impact individual taxpayers.

Reduces income tax rates. The bill retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent.

Doubles standard deductions. The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions are suspended, as well as most additional standard deductions (except for the blind and elderly).

Limits itemized deductions. Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:

Caps state and local tax deductions. State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.

Caps mortgage interest deductions. Mortgage acquisition indebtedness interest will be deductible for no more than $750,000. Existing homeowners are unaffected by the new cap. The bill also suspends the deductibility of interest on home equity debt.

Limits theft and casualty losses. These deductions are now only available for federally declared disaster areas.

Removes 2 percent miscellaneous deductions. Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Cuts some above-the-line deductions. Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.

Weakens the alternative minimum tax (AMT). The bill retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.

Bumps up child tax credit, adds family tax credit. The child tax credit increases to $2,000 from $1,000, with $1,400 of it refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.

Expands use of 529 education savings plans. Qualified distributions from 529 education savings plans now include amounts to pay tuition for students in K-12 private schools.

Doubles estate tax exemption. Estate taxes will apply to fewer people, with the exemption doubled to $11.2 million ($22.4 million for a married couple).

Reduces pass-through business taxes. Most owners of pass-through entities such as S corporations, partnerships and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation.

Because major tax reform like this happens so seldom, it’s worth scheduling a tax planning consultation to ensure you reap the most tax savings possible during 2018.

Getting audited by the IRS is no fun. Some taxpayers are selected for random audits every year, but the chances of that happening to you are very small. You are much more likely to fall under the IRS’s gaze if you make one of several common mistakes.

That means your best chance of avoiding an audit is by doing things right before you file your return this year. Here are some suggestions:

Don’t leave anything out. Missing or incomplete information on your return will trigger an audit letter automatically, since the IRS gets copies of the same tax forms (such as W-2s and 1099s) that you do.

Double-check your numbers. Bad math will get you audited. People often make calculation errors when they do their returns, especially if they do them without assistance. In 2016, the IRS sent out more than 1.6 million examination letters correcting math errors. The most frequent errors occurred in people’s calculation of their amount of tax due, as well as the number of exemptions and deductions they claimed.

Don’t stand out. The IRS takes a closer look at business expenses, charitable donations and high-value itemized deductions. IRS computers reference statistical data on which amounts of these items are typical for various professions and income levels. If what you are claiming is significantly different from what is typical, it may be flagged for review.

Have your documentation in order. Be meticulous about your recordkeeping. Items that will support the tax breaks you take include: cancelled checks, receipts, credit card and investment statements, logs for mileage and business meals and proof of charitable donations. With proper documentation, a correspondence letter from the IRS inquiring about a particular deduction can be quickly resolved before it turns into a full-blown audit.

Remember, the average person has a less than 1 percent chance of being audited. If you prepare now, you can narrow your audit chances even further and rest easy after you’ve filed.

The IRS recently announced mileage rates to be used for travel in 2018. The standard business mileage rate increased by 1 cent to 54.5 cents per mile. The medical and moving mileage rates also increased by 1 cent to 18 cents per mile. Charitable mileage rates remained unchanged at 14 cents per mile.

2018 Standard Mileage Rates

Mileage

Rate/Mile

Business Travel

54.5¢

Medical/Moving

18.0¢

Charitable Work

14.0¢

Here are 2017 rates for your reference as well.

2017 Standard Mileage Rates

Mileage

Rate/Mile

Business Travel

53.5¢

Medical/Moving

17.0¢

Charitable Work

14.0¢

Remember to properly document your mileage to receive full credit for your miles driven.

The maximum contribution to 401(k) accounts rises by $500 in 2018, the first increase in three years. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2018.

Retirement Contribution Limits

Retirement Program

2018

2017

Change

Age 50 or
over catch up

401(k), 403(b), 457 plans

$18,500

$18,000

+$500

add: $6,000

IRA: Roth

$5,500

$5,500

none

add: $1,000

IRA: SIMPLE

$12,500

$12,500

none

add: $3,000

IRA: Traditional

$5,500

$5,500

none

add: $1,000

Social Security

Item

2018

2017

Change

Wages subject to Social Security

$128,700

$127,200

+$1,500

Annual Social Security employee tax: $7,979.40

Average estimated monthly retirement benefit

$1,404

$1,360

+$44

Don’t forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.

The two biggest shopping days of the year are just around the corner. Black Friday, on Nov. 24, is the day after Thanksgiving when brick-and-mortar retailers entice shoppers with special deals. And online retailers provide a second round of shopping madness on Nov. 27, Cyber Monday. As you start to get bombarded with ads and emails, here are ideas to help make the most of these shopping-day phenomena.

Create a list before you shop. This can help eliminate unnecessary and impulsive purchases in-store or online. Consider breaking your list out into categories, like:

Necessary purchases

Gifts

Nice-to-have purchases

Create a budget and stick to it. If you take time before you shop to see what deals are available, you’ll be less likely to go over budget with your spending. After you make your budget, stick to it.

Start looking at ads as early as possible. Give yourself plenty of time to peruse and compare ads. Remember stores are competing against one another for business. This means there could be similar sales and deals at multiple places, including online. Once you find the best ads, you can create a targeted shopping plan.

Find the best way to make your purchases. Check both in-store Black Friday sales and online sales for Cyber Monday. Figure out the best way to make your purchases, even if that means venturing out on Black Friday for half of the things you need and taking advantage of online deals on Cyber Monday.

Make sure the deal is worth it. Do your homework. This means you should check the price history, verify the make and model of products (especially for electronics), and read reviews. Make sure there’s an actual discount, not just an increased price with a coupon attached.

Validate with social media. Use social platforms like Facebook, Twitter and Instagram to see what other people are talking about. You may even be able to find hidden coupons or learn about little-known deals.

Double-check the return policy. One way to avoid buyer’s remorse is to know the return policy for in-store and online purchases. Every business has a unique return policy, which can change for Black Friday and Cyber Monday deals. Moral of the story: know the return policy, no matter how big or small the purchase.

Don’t stress out. Try not to let excitement turn into stress and anxiety. It is easy to make a bad purchase decision caused by the chaos these annual sales events create. Remember you’ll always have more options, no matter what happens this year on Black Friday or Cyber Monday. Most businesses have seasonal holiday sales in stores and online, so there’s plenty of time left for holiday shopping.